IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "D" NEW DELHI
BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER
AND
SHRI H.S. SIDHU: JUDICIAL MEMBER
ITA no. 2595/Del/2013
Asstt. Yr: 2007-08
Krishna Devi Prop. Vs. Income-tax Officer,
Divine Enterprises Ward-4, Panipat.
Madlauda Mandi (Panipat)
PAN: AFEPD 0117 N
( Appellant ) (Respondent)
Appellant by : Shri K.C. Aneja Adv.
Respondent by : Shri Gaurav Dudeja Sr. DR
Date of hearing : 29/06/2015.
Date of order : 09/07/2015.
ORDER
PER S.V. MEHROTRA, A.M:
This appeal, preferred by the assessee, is directed against CIT(A)'s order
dated 1-2-2013 relating to A.Y. 2007-08.
2. Facts in brief, are that the assessee in the relevant assessment year
derived income from trading of food grains and commission agent. The AO
determined the total income at Rs. 10,49,331/-, inter alia, making following
additions:
(a) On account of low house hold withdrawals Rs. 3,09,000/-
(b) Interest to the assessee's taxable income
on account of a sum of Rs. 3,95,000/-
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remaining with the assessee for six months Rs. 23,700/-
(c) Interest on debit balances of Rs. 6,82,949/-
in respect of advances to other farmers,
lying with the assessee. Rs. 81,905/-
(d) Disallowance on shortage of paddy loss
claimed by the assessee Rs. 67,150/-
3. Ld. CIT(A), while partly allowing the assessee's appeal, confirmed
the aforementioned additions.
4. Being aggrieved, the assessee is in appeal before us and has taken
following grounds of appeal:
"1. That on the facts and in the circumstances of the case
addition of Rs. 309000/- alleged low and unexplained HH exp.
Vide para 4 of the assessment order have arbitrarily been made
on wrong observations of facts and are illegal.
2. That the learned CIT(A) on mere technical considerations
confirmed the unexplained HH exp. Rs. 309000/- vide para 5 of
the appeal order and ignored the natural justice.
3. That advances to farmers were made vide para 6 of the
assessment order in the course of business expediency without
consideration of interest. The AO without any reasons charged
interest of Rs. 23700/- & 81905/- and the learned CIT(A) vide
para 7 of the appeal order erred in confirming the same.
4. That AO can't compel to maximize the profits and ratio
of CIT/Abhishek Ind. Ltd. 286 ITR 1 is not applicable as such
addition of Rs. 23700/- + 81905/- have wrongly been made and
are warranted.
5. That addition of Rs. 67115/- vide para 7 of the
assessment order ignoring the shortage of paddy is arbitrary and
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wrong and the learned CIT(A) vide para 8 of the order has erred
in confirming the same."
5. Brief facts apropos ground nos. 1 & 2 in regard to low house-hold
withdrawals, are that AO noticed that assessee had shown house-hold
withdrawals of Rs. 10,500/- only. The assessee pointed out that she with her
husband Shri Vijender Mann would explain the source of house-hold
expenses. The AO recorded the statement of Shri Vijender Mann on 23-9-
2009, in which he deposed that the expenses on the education of the children
were approximately Rs. 2 lacs and Rs. 10,000/- p.m. had been incurred on
house-hold expenses. The source of these expenses were explained from
agricultural income of Rs. 11.33 lakhs derived from 20 acres of land. The
AO, after considering the statement of Shri Vijender Mann that he had sold
crops for Rs. 11.33 lacs, reduced 35% of the total receipts towards expenses
on agricultural operations which were not shown by Vijender Mann in his
copy of account and, accordingly, concluded that only Rs. 6.33 lacs was left
with him.
6. As regards the statement of Shri Vijender Mann that all funds were
withdrawn from the firm M/s Divine Enterprises and deposited in his bank
account for meeting the expenses on the education of the children after
withdrawing the same from the bank a/c, since no documentary evidence
was furnished, the AO show caused as to why Rs. 3,20,000/- should not be
treated as incurred out of source not disclosed to the department and addition
of Rs. 3,09,500/- be not made as Shri Vijender Mann was not in a position to
meet out all the expenses. The assessee, inter alia, stated as under:
"It is stated by the assessee vide reply dated 9.11.2009
that he had withdrawn money amounting to Rs.
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720000/- through Cheuqe from M/s Divine Enterprises
and deposited the same m his bank account and met out
the expenses on household and education of the
children after withdrawing the same. As regards to the
expenses on agrl. operations, it was stated that he spent
Rs. 4 lakhs out of money withdrawn from bank and
partly out of sales of buffaloes and tuda and Krishi
Card Loan from Central Bank of India, Rs. 3,00,000/-.
Regarding, payment of lease money for agricultural
land, it was stated that he had paid lease money for
agriculture land in earlier years out of advance from the
firm M/s Divine Enterprises and some part out of loan
from brother or any other relatives but no such matter
was brought to the notice of the Assessing Officer
when statement of Sh. Vijender Mann was recorded.
However, no evidence regarding sales of buffaloes,
tuda and loan taken from brother and other relatives
have been filed. The explanation filed by the assessee
has been considered and cannot be accepted in toto. As
stated above, Sh. Vijender Mann, husband of the
assessee was not in a position to meet out all the
expenses for household and education of the children.
Moreover, the bank statement furnished by the assessee
reveals the account is maintained jointly by the assessee
and her spouse. It has also been noticed that Sh.
Vijender Man has withdrawn an amount of Rs.
100000/- only on 9.5.2006 from Punjab National bank
and has not made any withdrawals upto 4.9.2006 which
is surprising as the major expenses on account of
education of children and harvesting of wheat,
ploughing of fields, plantation of paddy, fertilizer and
pesticides, irrigation etc. are to be incurred along with
other household expenses during this period. The
assessee has not even maintained any agriculture
expenses, ploughing, growing, irrigation, seeds,
maintenance of fields. payments to servants, harvesting
of crops etc. Keeping in view the above facts, it is clear
that the assessee has used agrl. income of her husband
as a shield for tax evasion with an impression in mind
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that the agrl. income can be shown without any limit
and base as pr convenience of someone, which is
evident from the fact that Sh. Vijender Mann spouse of
the assessee is not aware about the persons to whom
payment are to be made or what amounts as he failed to
give details of amount for which buffaloes and Tuda
was sold and amount of loan from brother and relatives.
Moreover, he could not co-relate his withdrawals and
expenses incurred on household, education of children
and agriculture expenses. Therefore, an amount of Rs.
30900/- incurred for household purposes and on
education of children has been spent by the assessee out
of her undisclosed sources and the same is added
towards her taxable income."
7. In appeal, ld. CIT(A) confirmed the AO's action.
8. Ld. counsel for the assessee submitted that the statement of Sh.
Vijender Mann was recorded on 23-9-2009. He referred to the
state of affairs as obtaining on the said date. He pointed out that the
expenses on the education of the children which were estimated at
approximately Rs. 2 lacs were not correct because in FY 2006-07 the
children were studying in +2 (class twelve) and not in the college for which
the expenses of Rs. 2 lacs were stated by Sh. Vijender Mann in his
statement. In support of his contention, he referred to the
confirmation from DAV Public School, Panipat dated 5-3-2010
contained at pages 22 & 23 of the PB wherein the details of fee
for the whole period is given which was Rs. 17,515/- in case of
Vidhi Mann and Rs. 16,315/- in case of Vipin Mann. Ld. counsel
further referred to the details of withdrawals for AY 2006-07 and
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2007-08, contained at pages 24 & 25 of the PB in respect of Sh.
Vijender Mann.
9. Ld. counsel further submitted that no credit has been allowed
in respect of sale of buffalo, tuda and Krishi Card Loan from
Central Bank of India at Rs. 3 lacs.
10. Ld. DR relied on the order of ld. CIT(A).
11. We have considered rival submissions and have perused the material
available on record. The statement of Shri Vijender Mann is contained at
pages 17 to 19 of the PB. In reply to the question relating to family
members, Shri Vijender had, inter alia, stated as under:
Que:- Please give the details of your family members along
with their occupation and source of income?
Ans:- We are four members i.e. myself, wife two children. Both
the children are college going, myself is agriculturist and my
wife Smt. Krishna Devi is prop. Of Divine Enterprises,
Madlauda. Sh. Vipin who is studying in LLB 1st year in
Kurukshetra university and Miss Vidhi Mann (daughter) is
studying B. Sc. Phy. Honours, Marinda House Delhi
University.
12. From the reply, noted above, of Sh. Vijender Mann it is evident that
he was giving answers in present tense and, therefore, we find
considerable force in the submission of ld. counsel for the assessee that
the statement refers to the position as obtaining on 23-9-2009 when
admittedly the children were not college going. However in AY 2006-
07 the children were school going as is evident from the certificate filed
in the PB. These certificates are photo copies only and were not
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furnished before the AO and were filed for the first time before the ld.
CIT(A). Ld. CIT(A) has not considered these certificates. Therefore,
the authenticity of these certificates needs to be examined at the AO
level. These certificates clearly negate the very basis for making
addition of Rs. 3,09,000/- which was primarily made on the basis of
house-hold expenses being Rs. 10,000/- per month and children
education at Rs. 2 lacs. Further, keeping in view the extensive
agricultural activities carried out by assessee's husband, his statement
that he had sold buffalo and tuda for more than Rs. 1 lacs cannot be
doubted particularly when at the time of taking the statement the AO
did not ask for the same which is evident from the following
questionnaire and answer:
"Que:- As you have stated above that you have spent Rs.
385000/- on Agrl. Operation, Rs. 200000/- on education of
children, Rs. 120000/- on H.H. Exp. And Rs. 120000/- paid as
contract money totaling Rs. 825000/- on perusal of your a/c it is
noticed that you have shown withdrawals for fertilizers only Rs.
15206/- please explain now where the other exp. Of Rs.
370000/- were met out.
Ans: In addition to the withdrawals of Rs. 15206/- I have also
withdrawn Rs. 725000/- through cheques and the same were
deposited in my saving A/c where from I have met out all the
other expenses. In addition to sale of Agri products I have also
sold Tura and buffaloes etc. for more than Rs. 1 lakh. The
balance exp. of Rs. 85000/- were met out of the cash money
received on sale of Tura/buffaloes.
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13. Therefore, assessee should be allowed further credit of Rs. 1 lakk
from the addition made for house hold expenses over and above the credit
to be allowed in respect of educational expenses, which were only Rs.
33,830/- (Rs. 17,515/- + 16,315/-) and not Rs. 2 lakhs subject to verification
of the certificates from D.A.V. School (supra).
14. The matter is restored to the file of AO for verification of the
certificates from DAV school contained at pages 22 & 23 of the PB. In the
result, ground nos. 1 & 2 are partly allowed for statistical purposes.
15. Apropos ground nos. 3 & 4, brief facts are that from the balance-sheet
AO noticed that assessee had not charged interest against debit balances
outstanding from Shri Om Pal Duhan (Rs. 6,00,000/-), Sh. Vijender Mann,
Sh. Balbir Rs. 27,951/- and Sh. Badan Mann Rs. 54,598/- whereas she
was paying heavy interest on the borrowed funds to the banks and
others. The AO, relying on the decision of Hon'ble Punjab & Haryana
High Court in the case of CIT Vs. Abhishek Industries Ltd. 286 ITR 1,
and after considering the assessee's reply, made addition of Rs.
23,700/- in respect of interest free advances to Sh. Vijender Mann of
Rs. 3,95,000/- and Rs. 81,905/- in respect of advance to other farmers
on total debit balance of Rs. 6,82,940/-.
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16. Ld. CIT(A) confirmed the AO's finding, inter alia, observing that
the plea of the assessee, that giving interest free advance was
advantageous in business and regular mode of earning and these
advances were in the nature of commercial expediency and accepted in
trade practice, was not tenable as the assessee had paid interest to each
and every creditors i.e. all the farmers to whom cost of their produces
remained unpaid or adjusted the loan along with interest out of their
sale proceeds.
17. We have considered the rival submissions and perused the material
available on record. The assessee's explanation before AO is contained at
pages 26 to 29 of the PB, in which as regards advance to various debit
balances, it is stated as under:
"Advance to Sh. Vijender Mann:
Sh. Vijender Mann is my husband. He is doing agriculture
operations.
During the year 2006-07, he has sold agriculture produce worth
Rs. 1137629/- on my shop. His account run whole of the year.
Some time his advance remain toward me and some time my
advance remain toward him. It is my practice no to charge and
not to pay any interest to him. His account was mostly adjusted
through the sale of his agriculture produce during the year. His
total debit balance as on 31.03.2007 was Rs. 222514.73. His
advance consists of the payment to him Rs. 100000/- on
19.03.2007 and Rs. 1000001- on 23.03.2007. Hence I did not
charge any interest from him.
Advance to Sh. Badan Mann:
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Sh. Badan Mann is an old customer of my firm. He sells his
farm produce on my shop. During the year 2006-07, he has sold
his agriculture produce amounting to Rs. 527385/- on my shop.
He has purchased fertilizer for Rs. 434211- from my shop. He
has taken the balance in cash or account payee cheques. During
the year 2006-07 his account was in credit upto 04.03.2007
(About 11 Months). His account became debit only on
05.03.2007 when I paid him Rs. 1000001- through cheque."
Advance to Sh. Om Pal Duhan:
I had given an advance of Rs. 7000001- on dated 18.09.2006
vide Ch. No. 060782 to Sh. Om Pal Duhan for a short period
for promotion of my business. After some time when I
demanded back the loan alongwith interest, he has avoided.
After my repeated request for repayment, he has repaid Rs.
1000001- (in five installment of Rs. 200001- each) in the last
week of March, 2007. It is very difficult to recover back the
principal of the loan from him, what to say of interest. I am
recovering back the loan from him in small amounts. Presently
an amount of Rs. 3100001- of principal is outstanding towards
him and there me very low chances. of recovery of this amount.
I will file a case in the court for the recovery of my loan. When
there are very low chances of recovery of principal amount, it is
not prudent to charge interest on such amount. Hence I did not
charge any interest on the advance to Sh. Om Pal Duhan.
Advance to Sh. Balbir:
I had given an advance of Rs. 27951/- to Sh. Balbir. Sh. Balbir is my
old customer. He has advised many other customers for dealing with
my firm. The amount of advance is very small. Some time he deposits
his money with-the firm and I do not pay him any interest. I neither
charge any interest from nor pay any interest to him.
18. A bare perusal of the above noted explanation makes it evident that
Sh. Vijender Mann and assessee had current account and the entire
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agricultural produce was sold through assessee on which assessee got
commission.
19. In respect of other advances also there were business dealings with the
parties and, therefore, amounts were lying in different accounts on account
of commercial expediency. Hence, no addition was called for on account of
debit balances lying with customers on notional basis for not charging
interest on their account. We may further observe that there is no finding
recorded by lower revenue authorities as to whether the advances lying with
customers were out of borrowed funds or out of own funds. Therefore, we
are of the opinion that lower revenue authorities were not justified in making
addition on this count. We, therefore, delete the addition in question.
20. Apropos ground no. 5, regarding disallowance of shortage of paddy,
brief facts are that assessee had claimed shortage of paddy weighing 43.61
qtls. The assessee's explanation was that the paddy was old and she had
purchased this paddy last year. Hence there was small shortage of 43.61 qtls
due to drying. The AO rejected the assessee's contention observing that the
assessee had been doing the business of purchase and sale of paddy for last
so many years but no shortage had been found to be claimed in the year.
Moreover, the assessee had not furnished any evidence to prove the
genuineness of the claim made by the assessee on account of shortage of
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paddy. He, accordingly, made addition of Rs. 67,115/- by applying the rate
of 1539/- per qtl. as adopted by the assessee while valuing the value of
closing stock.
21. Before ld. CIT(A), the assessee had, inter alia, submitted as under:
"This pertains to paddy shortage value adopted 67115,
disallowed copy of paddy account attached page 41.
On perusal of the same it is evident that there is brought
forward stock of 345.96 Qtl. Pertaining to purchases made in
2004-05 & 2005-06 F. years and during the year 213.54 qt. was
purchased. It contain great moisture and over a gape of time it
is dried up resulting shortage. Even.
Paddy purchased by the shallers holders are diredup & shortage
in normal practice 10 to 12% are allowed. But in the case of
assessee brought forward stock remained for a longer period,
which is also decreased by eating by rats. Shortage occurred is
about 8% which in normal course is allowable due to natural
causes & may please be allowed. The AO without any
reasonable cause disallowed and added to the income, which is
wrong. Even on the basis of purchases, average value rat comes
to Rs. 1295 per qt. and rate applied Rs. 1539 is wrong."
22. Ld. CIT(A) called for the comments of the AO. In the remand report
the AO stated as under:
"(8) As regards to the disallowance of shortage. claimed in paddy
account, it was contended by the assessee that there is brought
forward stock of 345.96 qtl. Paddy pertaining to purchases
made in 2004-05 and 2005-06 and in financial year in question
213.54 qtls. Paddy was purchased and it contain great moisture
and over a gape of time it is dried up resulting into shortage. It
is not tenable keeping I view fact that had the purchases were
made in the financial year 2004-05 and 2005-06, the shortage
should be claimed in that year also not in the year in question.
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The assessee used this device only to avoid to pay taxes. As
regards to the contention that average rate come to Rs. 1295 per
qtl as against rate applied by the AO at Rs. 1539/- is not tenable
as the rate of 1539/- was herself adopted by the assessee while
valuing the closing stock. Moreover, no documentary evidence
substantiate her claim of average rate of Rs. 1295/- per quintal
was furnished by the assessee either during the course of
assessment proceedings or before your good office. "
23. Ld. CIT(A) after considering the remand report, confirmed the
addition, by observing as under:
8.04 The issue is considered. The main argument put forth by the
appellant is that in the case of rice Shellers, driage and pilferage
up to 10% is allowable, whereas, the appellant has only claimed
a shortage of 8%, which the appellant contends is normal. As
rightly observed by the AO in the assessment order, as the
purchases were made in the financial year 2004-05 and 2005-
06, the appellant should have claimed shortages in those years
too. Therefore, the AO was right in concluding that the excuse
of driage and paddy eaten by rats is a device used by appellant
to avoid to pay taxes. Further, the plea of the assessee is also
not tenable in view the fact that the appellant has been doing the
business of purchase and sale of paddy for last so many year
but has never made a claim of shortage ever in the earlier years.
Moreover, the appellant ahs not furnished any evidence to
prove the genuineness of claim made. Therefore, the claim by
the assessee on account of shortage of 43.61 quintals of paddy
was rightly disallowed and an addition of Rs. 67,115/- is made
by applying the rate of Rs. 1539/- per quintal, which was the rat
e adopted by the appellant while valuing the value of closing
stock. Moreover, no documentary evidence to substantiate her
claim of average rate being Rs. 1295/- per quintal was furnished
by the appellant either during the course of assessment
proceedings or during appeal proceedings."
24. We have considered the rival submissions and perused the material
available on record. Loss on account of drying of paddy cannot be denied
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merely because in earlier year assessee had not claimed the same. It is a
natural phenomenon and, therefore, on account of drying of paddy loss in
weight is bound to occur. We are in agreement with ld. CIT(A) that as far as
the opening balance is concerned, no loss on this count can be allowed
because, if there was any such loss, it should have been claimed in earlier
year. However, in respect of purchase of paddy during the year, we are of
the opinion that it would meet the ends of justice if 5% loss on the purchase
of paddy during the year is allowed on account of moisture less of the paddy.
In the result, ground nos. 3 & 4 are partly allowed.
25. In the result, appeal is partly allowed for statistical purposes.
Order pronounced in open court on 09, 07,2015.
Sd/- Sd/-
(H.S. SIDHU) ( S.V. MEHROTRA )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 09-07-2015.
MP
Copy to :
1. Assessee
2. AO
3. CIT(A)
4. CIT
5. DR (ITAT)